Are we teaching the right fiscal values to our children

Over the weekend I read with anguish, the article “An Open Letter To My CEO” where a young former support team member of Yelp’s Eat24 support team talks about her salary and difficulties with expenses in the high cost of living area San Francisco.

In 2009, @NancyTrejos wrote an article in the Washington Post “How Should Parents Teach Teens About Credit Cards?” I had a chance to contribute to this article. My biggest fear at that time was that I would bring up kids who thought that credit cards were bottomless pits of money. I wanted my kids to learn about budgets, expenses and saving while they were under our care rather than when they were on their own.

Today the job market for new graduates does not seem to be great specially if you are not is the so called “hot” professions like computer science. Internships as an option do not pay much but may be necessary to get the real world experience needed to land your first job. How does a youngster accept and manage their finances with their first job? If we start with the premise that a person should only spend as much as they earn then that becomes the number one consideration when taking the job. I googled the term “how to budget your monthly salary” and there were 51 million articles in Google. The first one is by Laura Shin. I took an extract from the article here:

Case study: Molly

“Molly is a 22-year-old recent graduate with her first job, working in Chicago. She has student loans, but she is still able to meet her student loan payment every month and contribute to a Roth IRA, plus pay all her bills.

Her income: $36,000 a year

Her take-home pay after taxes: $2,250 a month (we’re assuming 25% of her salary goes toward a combination of taxes and her 401(k) contributions)

Fixed Costs:
Rent: $775
Transportation: $115
Utilities (including phone and internet): $135
Gym and subscriptions: $75
Total: $1,100, which is about 49% of her take-home pay

Financial Goals:
Student Loan: $150
Roth IRA contributions: $200
Emergency fund: $75
Backpacking trip fund: $50
Total: $475, which is about 21% of her take-home pay

Flexible Spending: $675, which is 30% of her take-home pay

Because Molly is on a tight budget, her fixed costs are very close to the 50% limit. Still, she is able to make her student loan payment and even put 9% of her take-home pay toward retirement, where the money should have a long time to grow.

From this model it is pretty clear that you have to allocate only $775 for housing. That means finding a place with other roommates or as Washington Post Columnist Michelle Singletary @Michellsingletary suggests “ To pay off student loans, reconsider your roof”. One thing in this model is that the flexible spending is $675 and if there is a car payment involved it can take up at least $350 of this amount.

A 2007 Charles Schwab survey that showed that only 45 percent of teens know how to use a credit card. Even worse, just 26 percent of teens understood credit card interest and fees. I hope if you have an opportunity, you will spend the time needed to make your children expert at fiscal responsibility and work with them since these are economically hard times.

As for the “An Open Letter To My CEO”, it was wrongly addressed to Yelp’s CEO. It should have been addressed to people who had the opportunity to educate their kids on proper budgeting.

See how Christopher W. Ullman.is teaching his kids ethic of financial responsibility

Are you doing enough to teach your kids how to manage their money? Any tips you would like to offer?